By Ashwin Patni
Multicap funds, with their ability to invest across various market capitalisation segments, have emerged as a popular choice for those seeking a balanced and diversified portfolio. By adapting to changing market conditions and capturing growth opportunities across various segments, these funds can help investors achieve their long-term financial goals.
Each cap category in a multicap fund must have a minimum of 25% exposure and the remaining 25% can be allocated at the fund manager’s discretion based on the underlying investment strategy of the fund. Unlike sector-specific or thematic funds that concentrate on particular industries or themes, multicap funds offer a broader exposure to the Indian equity market.
Adapting to market cycles
Multicap funds can balance their portfolios dynamically by adjusting their portfolio allocation based on changing market conditions. This is possible because the funds have the flexibility to manage 25% of their allocation dynamically, depending on the fund’s strategy. For instance, during a bull market, the fund manager may allocate a larger portion of the portfolio to mid-cap and small-cap stocks, which often outperform large-cap stocks in such environments. Conversely, during a bear market, the fund manager can shift the focus towards more established large-cap companies that are generally considered less volatile.
Large-cap companies often represent established businesses with strong fundamentals, while mid-cap and small-cap companies may have higher growth potential but are associated with greater volatility. A multicap fund can strike a balance between these segments.
Providing diversification benefits: Diversification is a fundamental principle of investing. By investing in companies across different market capitalisation segments, multicap funds can capitalise on growth opportunities in various sectors.
Enabling risk mitigation: If one sector or company performs poorly, the overall portfolio may not be significantly impacted. Being spread across sectors and being actively managed, you are still benefiting from the exposure to equities.
Offering professional management: Multicap funds are managed by professional fund managers who have the expertise to select and manage investments. This reduces the need for individual investors to conduct extensive research and make investment decisions.
The writer is head, Product & Alternatives, Axis AMC
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